Less than a month after assuming the country’s highest public post, President Joko “Jokowi” Widodo hiked the prices of subsidized fuel on Monday in a bid to reallocate the ever-increasing funds spent on fuel subsidies to finance the government’s development programs.
Speaking in a press conference at the Presidential Palace, President Jokowi said the price of subsidized Premium gasoline would increase from Rp 6,500 (53 US cents) per liter to Rp 8,500, while the price of diesel would be raised from Rp 5,500 to Rp 7,500 per liter. Kerosene remains unchanged at Rp 2,500 per liter.
“The new fuel prices will take effect from midnight Nov. 18, 2014,” Jokowi said.
He said the fuel-price hike was necessary to allow the government to allocate a larger slice of the state budget to development programs.
“All this time, the government has needed to develop infrastructure, education and health, but the funds have been unavailable because they have been wasted on fuel subsidies,” Jokowi said in his speech, accompanied by Vice President Jusuf Kalla and several Cabinet members.
“From time to time, we, as a nation, have faced difficult options. However, we must choose and make a decision,” Jokowi said in his opening remarks in a speech that lasted less than three minutes.
The announcement took place a matter of hours after the President gathered his ministers in a Cabinet meeting at the same venue.
Energy and Mineral Resources Minister Sudirman Said reassured the public that state-owned oil and gas company Pertamina was prepared ahead of the government’s decision to increase fuel prices.
“The [fuel] stock is sufficient. There is no need to rush to fuel stations. The public need not panic,” he said.
Finance Minister Bambang Brodjonegoro, meanwhile, said the fuel-price hike of Rp 2,000 per liter might drive up inflation by around 2 percent.
He added that the reallocation would provide the government with an additional Rp 100 trillion to work with in next year’s revised state budget (APBN-P).
The annual inflation rate surged to 8.4 percent when the government hiked the price of subsidized fuels last year.
After former president Susilo Bambang Yudhoyono’s government adjusted fuel prices in June, 2013, inflation exceeded 8 percent for seven consecutive months until January. Nevertheless, price levels returned to their pre-adjustment levels recently, with inflation standing at 4.5 percent at the end of September.
In his election campaign, President Jokowi pledged to reform Indonesia’s burdensome and poorly targeted fuel subsidies, which had been forecast to amount to
Rp 276 trillion next year, accounting for around 15 percent of total state spending.
The amount allocated for fuel subsidies is higher than the country’s annual infrastructure spending.
Moreover, the immensely costly subsidies are considered to have little impact on economic growth or people’s welfare, especially as the policy mostly benefits car and motorcycle owners, who tend to come from the middle classes.
Jokowi said the government would provide low-income families with several social-protection cards, comprising the Indonesia Health Card (KIS), the Indonesia Smart Card (KIP) and the Prosperous Family Card (KKS), to cushion the impact of the fuel-price hike.
“It is part of our efforts to maintain the people’s purchasing power and to start various activities in the productive economy,” he said.
Soon after the announcement, long queues were visible at several gas stations, causing traffic congestion. Motorists lined up to fill their tanks before midnight.
“I have to fill the tank before midnight,” said Ahmad, one of the queuing motorists, at a gas station on
Jl. Sam Ratulangi, Menteng, Central Jakarta, as quoted by Antara.
Gareth Leather from Capital Economist said in an analysis that Jokowi was “serious about economic reform in Indonesia, and is even prepared to take steps that may prove unpopular in the short run”.
He forecast the likely increase in inflation in December would be to around 7 percent.